Brazil minister backs tariff to curb U.S. ethanol imports

BRASILIA/SAO PAULO (Reuters) - Agriculture Minister Blairo Maggi has asked Brazil’s foreign trade council to impose tariffs on ethanol imports following a surge in shipments from the United States, an official said on Thursday, a move that could stir trade tensions with the Trump administration.

FILE PHOTO: Brazil's Agriculture Minister, Blairo Maggi speaks during a ceremony to mark the signing of a decree on new regulations for beef inspection, at the Planalto Palace in Brasilia, Brazil March 29, 2017. REUTERS/Ueslei Marcelino

Brazil is the main market for U.S. exports of corn ethanol which have swelled in recent months to fill a gap left by falling domestic output, as cane farmers in the South American country diverted more of their crop to making sugar because of high prices.

Ethanol imports from the United States increased fivefold to a record 720 million liters in the first quarter - worth some $363 million, according to official trade data.

Most of that went to ports in northeastern Brazil, where ethanol producers are leading calls for the imposition of a 20 percent tariff.

The Agriculture Ministry’s secretary for international relations, Odilson Ribeiro, told Reuters the minister sent the request on Wednesday to the foreign trade chamber, known as Camex, that decides on import and export rules.

The seven-minister council is due to meet on Wednesday when the sugar and ethanol industry lobby UNICA hopes the tariff will be approved, though the body has no deadline to decide.

Imposing a tariff on ethanol imports, which come almost entirely from the United States, would put Brazil on a collision course with the more aggressive U.S. trade policy under President Donald Trump.

Brazil scrapped the levy in 2010 as it lobbied for liberalizing the ethanol trade, pressuring the United States to remove its own import tariffs.

At a meeting on Wednesday, Brazil’s sugar cane lobby UNICA pressed Maggi, a billionaire soy producer who has not always supported the industry, for a 16 percent tariff.

Ministry officials declined to say whether Maggi had recommended a tariff level, but an aide said the wider trade implications of the decision were being analyzed.

“We are evaluating the impact this could have on Brazil’s overall trade relations, especially with the United States,” the Maggi aide said, requesting anonymity due to the sensitivity of the matter.

NOT FAIR TRADE

U.S. ethanol producers have redirected exports to Brazil after China reintroduced a 30 percent ethanol tariff this year.

Edward Hubbard, general counsel for the Renewable Fuels Association that represents U.S. biofuels producers, said the RFA, Growth Energy and the U.S. Grains Council wrote this month to the U.S. Trade Representative about the matter, copying the White House, USDA, and the Department of Commerce.

“Trade is not free and fair if the U.S. opens its door to Brazilian imports but Brazil chooses to erect trade barriers to protect its industry from competition,” he told Reuters, adding that U.S. officials had spoken to counterparts in Brazil about the matter.

The Brazilian Energy Ministry’s biofuels director, Miguel de Oliveira, warned this week the U.S. government would retaliate if Brazil resorted to ethanol tariffs.

Traders expect the surge in imports to continue even if a tariff is imposed, as big players in Brazil are heavily buying U.S. ethanol, among them Copersucar, which controls biofuel marketer Eco-Energy LLC.

Biosev SA, a unit of trader Louis Dreyfus Co, and Raizen - a joint venture between Brazil’s largest sugar producer Cosan and Royal Dutch Shell - are also active buyers, traders said.

“Maybe (it will) reduce the flow a little bit but we still expect them to maximize sugar and still need ethanol,” said one U.S. trader, on condition he was not named. He saw no more than a 50-50 chance of tariffs because of the prospect of U.S. retaliation.

UNICA said in a statement to Reuters the levy was needed for environmental reasons because Brazilian sugar cane ethanol produces less greenhouse gas emissions than U.S. corn ethanol, helping Brazil to meet its targets under the Paris climate change agreement.

A spokeswoman for the lobby said UNICA hoped the matter would be settled next week.

Joel Velasco, who led UNICA’s efforts to expand biofuel markets in the last decade, said a return to tariffs was the wrong policy at the wrong time.

“Protectionist moves are short-sighted in any climate but especially now when the current U.S. administration would likely retaliate disproportionately,” said Velasco, Latin America expert at Albright Stonebridge Group.

Reporting by Anthony Boadle and Marcelo Teixeira; Additional reporting by Chris Prentice in New York; Editing by Andrew Hay